CARPE DIEM

Professor Mark J. Perry's Blog for Economics and Finance

Tuesday, November 23, 2010

Don't Blame U.S. Consumers for Overspending

A senior CNN writer cooked up quite "a stew of errors, misunderstandings, and non sequiturs" (to quote Don Boudreaux referring to another recent "trade stew") about trade imbalances in an article titled "The Trouble With 'Global Imbalances'." Don responded here to this example of the "hysteria stirred up by the incessant barrage of uninformed reporting about trade and trade deficits."

One theme of the CNN article of "global imbalances" is that Americans "overspend" and "overconsume," and this consumer profligacy allegedly contributes to the "global imbalances." Here are some excerpts:

"The real problem is overspending by U.S. consumers, and not enough spending by consumers in some of those other markets.

"The bottom line is we overconsume," said Diane Swonk, chief economist at Mesirow Financial. "What [rebalancing] means is fundamentally changing what we're doing. It's going to be painful."

How to reduce that overconsumption by Americans, and how to spur spending by consumers in emerging economies such as China and India is not easy, according to economists."

MP: The chart above of the U.S. personal savings rate shows that Americans have been saving between 5-6 percent of disposable personal income in every month for the last two years, and that's the highest level of savings since the mid-1990s. With Americans now saving at the highest rates in 15 years, can there really be a problem with "overspending by U.S. consumers?" If there is a problem in the U.S. of "overspending," it's not the millions of consumers who are to blame, it's probably gotta be that other group - the one that has 535 members.

Rapacious Income Inequality?

In a recent editorial titled “A Hedge Fund Republic?” New York Times columnist Nicholas Kristof claims that if you want to observe “rapacious income inequality,” you don’t need to travel to a banana republic. Rather, you can simply look around the United States to see “stunning inequality” that is supposedly the result of some rapacious plundering of America’s poor by wealthy plutocrats.

PR Newswire -- "comScore, a leader in measuring the digital world, today reported holiday season retail e-commerce spending for the first 21 days of the November – December 2010 holiday season, as well as its official spending forecast for the season. For the holiday season-to-date, $9.01 billion has been spent online, marking a 13% increase versus the corresponding days last year (see chart)."

"The beginning of the online holiday shopping season has gotten off to an extremely positive start, outperforming our earlier expectations," said comScore chairman, Gian Fulgoni. "Despite continued high unemployment rates and other economic concerns, consumers seem to be more willing to open up their wallets this holiday season than last. While this early spending surge reflects, in part, heavy promotional activity on the part of retailers occurring earlier this season, it is nevertheless a very encouraging sign."

The official comScore 2009 holiday season forecast is that online retail spending for the November – December period will reach $32.4 billion, representing an 11% gain versus year ago. This strong growth rate represents an improvement compared to last season's 4% increase.

"After a year in which we already saw growth rates return to solid positive territory, the recent strength in holiday spending has led us to raise our official forecast to 11 percent from the 7 to 9 percent we were initially expecting," added Fulgoni. "We are seeing online spending surpass the totals we saw in 2007 prior to the recession and expect sales this holiday season to be the highest on record with more than $32 billion being spent during the November and December period."

Consumer Spending Is Back to Pre-Recession Level

From Table 8 in today's BEA report: Real personal consumer expenditures reached $9.34 trillion in the third quarter, the highest amount of quarterly spending since the slightly higher $9.342 trillion in the fourth quarter of 2007 when the recession started (see top chart).

On a percentage basis, real personal consumption expenditures grew by 2% in the third quarter compared to the same quarter last year, and this was the largest quarterly increase in consumer spending in three years going back to the third quarter of 2007 - the quarter before the recession started (see bottom chart).

Satellites Show Mall Traffic Surge in November

BARRONS -- "Mall traffic for November 2010 has shown a steep rise recently, according to a report released today by Thomson Reuters. Using satellite images the firm is able to measure parking lot traffic, which correlates well with same-store sales.
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“Based on this relationship, we may be seeing an early sign that stronger November 2010 mall traffic is pointing to stronger same-store sales,” wrote Thomson Reuters analyst Jharonne Martis-Olivo in the report. At 3.5%, the Thomson Reuters Same-Store Sales Index for November is significantly stronger than the 0.5% in November 2009 and the -7.8% for November 2008.

“Retailers seldom release average ticket prices, but the CPI was flat as of the Nov. 17, 2010 reading,” Martis-Olivo wrote. “Thus, if November mall parking lot traffic has been on the rise, while inflation remains unchanged, then there’s a pretty good chance that shopper conversion rates could be higher this year.”

SNL Skit on TSA Enhanced Security Procedures

Real Corporate Profits Back to Pre-Recession Levels

U.S. corporate profits reached a new record high in the third quarter of $1.221 trillion (at an annual rate), after taxes and adjustments for inventory valuation and capital consumption (see graph above, data here), according to today's BEA report. Compared to the second quarter, corporate profits increased by $12.6 billion during the summer months, and that makes seven straight quarterly gains in profits going back to the first quarter of 2009. From the cyclical bottom of $774 billion of profits in the fourth quarter of 2008, profits for U.S. companies have rebounded by 57.6%, and by $446.5 billion.

Adjusted for inflation (using the Business Sector Deflator), real corporate profits in the third quarter were just slightly below the all-time record high of $1.229 trillion in third quarter of 2006 (see red line in graph above).

Markets in Everything: Hire A Professional Ad Writer to Help With Your Dating Profile

"Make your inbox go from empty to full of promise.I'm Kate Houston, I've been an award winning ad writer for 20 years. I find out what makes you special then, with a few choice words, I make you irresistible.

Online dating is competitive. With thousands of singles online, even good looks are not enough. But, you can stand out from any crowded online dating site! All you need is a dating profile so engaging, it gets attention and keeps it - and that's my speciality (sic)!"

MP: Prices start at $20 to re-write an existing profile, and $80 to write an entire new profile. Let's hope the spelling is better than Kate's own ad copy above!

Monday, November 22, 2010

Gotta Love Wal-Mart

THE ATLANTIC -- "In October, Walmart unveiled its commitment to sustainable agriculture, including a goal to double the amount of locally grown produce we sell in the United States. But what does that mean and how will we do it? To better understand where Walmart is heading, let's take a look at what we're already doing with jalapeño peppers.

Today, we source jalapeño peppers from 20 states—including some you wouldn't think of, like New York and Michigan—and jalapeños have proven to be a win-win-win. Our customers get a fresher product. We save money on freight so we can keep our prices low, while slashing carbon emissions. And our farmers are thrilled with our new strategy—they are earning more, and they're now coming to us to ask what else the market might want that they can grow."

MP: Although Wal-Mart has a reputation for: a) outsourcing its products overseas, and b) putting local, small merchants out of business, this is an example of exactly the opposite: a) sourcing its produce locally, and b) supporting local, small farmers.

Case Study in Rent-Seeking and Capture Theory

WASHINGTON — "The companies with multimillion-dollar contracts to supply American airports with body-scanning machines more than doubled their spending on lobbying in the last five years and hired several high-profile former government officials to advance their causes in Washington, records show.

L-3 Communications, which has sold $39.7 million worth of the machines to the federal government, spent $4.3 million to influence Congress and federal agencies during the first nine months of this year, up from $2.1 million in 2005, lobbying data compiled by the Center for Responsive Politics show. Last year, the company spent $5.5 million on lobbying.

Rapiscan Systems, meanwhile, has spent $271,500 on lobbying so far this year, compared with $80,000 five years earlier. It has faced criticism for hiring Michael Chertoff, the former Homeland Security secretary, who has been a prominent proponent of using scanners to foil terrorism. Officials with Chertoff's firm and Rapiscan say Chertoff was not paid to promote scanner technology. It spent $440,000 on lobbying in 2009. The government has spent $41.2 million so far on Rapiscan's machines."

U.S. Hotel Industry Improves in October

HENDERSONVILLE, Tennessee—"The U.S. hotel industry posted increases in all three key performance measurements during October 2010. In year-over-year measurements, the industry’s occupancy was up 6.9 percent to 61.3 percent. Average daily rate ended the month with a 1.2-percent increase to $100.89. Revenue per available room for the month rose 8.2 percent to finish at $61.89 (see chart,click to enlarge)."

“Overall, industry fundamentals continued to improve across the board in October,” said Mark Lomanno, president of STR. “While room rate growth remained sluggish in October, we attribute that to lower rated group business that was booked months before there was a significant demand turnaround. We’re hopeful that we will see steady, but probably slow, room rate growth for the remainder of the year.”

For both: a) the three month period from August-October, and b) year-to-date through October, hotel occupancy rates improved compared to last year.

Sunday, November 21, 2010

Markets in Everything: Oil-Filled Wine Bottles

"Wine bottles have been flying off the shelves at gas stations in North Dakota recently. Bakken Formation Wine, however, isn’t meant for drinking.

The bottles, being sold at Cenex gas stations in Tioga and Stanley, are filled with Bakken oil “Vintage 100 million years,” according to the stickers on the bottles. Diane Clark, station manager at the Tioga Cenex station, said 1,000 bottles of Bakken Formation Wine were made.

“All proceeds will be set aside for donations to local charitable organizations in the Tioga and Stanley areas,” said Clark. Bottles of Bakken Formation Wine have a sale price of $10."

2010-2015 Could Be The Strongest Six-Year Period of World Real GDP Growth in a Generation

The International Monetary Fund is now predicting world real GDP growth this year of 4.6%, followed by 4.3% next year, and then 4.50% growth or above from 2012 to 2015. If so, the 2010-2015 period would be the strongest growth for the world economy during a six-year period in at least 30 years (see chart above).

Japan: Exports Surging from Strong Global Demand

1. "Japanese export ship orderssurged 88.5 percent in October compared with a year ago to 675,300 gross tons. Climbing back after 15 months of steep decline in the global recession, ship orders have grown by large double digits and sometimes into triple digits in the last 11 months. In August the gain was 111.3 percent."

2. "All Nippon Airways (ANA) increased its international cargo volume 32.6 percent from last year to 42,007 tons in September, the 13th consecutive month of growth. Gains outpaced the 30.2 percent increase in August. In the first half of fiscal 2010, ANA's international cargo volume totaled 240,421 tons, up 40.4 percent from a year earlier. The carrier's domestic cargo volume between April and September amounted to 232,509 tons, up 4.1 percent from the same six-month period last year."

The Mandarins Now Come to Cuba By Boat

You would think that oranges on most citrus-friendly Caribbean islands would be a common, locally grown, readily-available fruit. Well, not if that island is Cuba, as Cuban blogger Yoani Sanchez explains here in a post titled "The Mandarins Come by Boat."

Saturday, November 20, 2010

Tenure: Economic Anomaly That Protects Laziness

From today's Wall Street Journal article "How to Succeed in Teaching Without Lifetime Tenure: The Franklin W. Olin College of Engineering attracts 140 applicants for every faculty position. And they can even be fired" (paid subscription may be required to view full article, but see first comment below):

"Franklin W. Olin College of Engineering in Massachusetts is showing what's possible when a school sheds tenure, one of the most antiquated and counterproductive employment policies in the American economy. Instituted at a time when people in most professions remained in the same job for life, tenure today is an economic anomaly. The policy protects laziness and incompetence — and rewards often obscure research rather than good teaching."

Right-to-Work vs. Forced Unionism States in 2009

The Bureau of Economic Analysis just released state-level GDP data for 2009, and the chart above shows how individual states were affected by the economic downturn. Real GDP declined in 38 states in 2009, and overall GDP for all states declined by -2.14%.

Here's a comparison of right-to-work states vs. forced unionism states for real economic growth in 2009:

Right-to-work states: -1.66%

Forced unionism states: -2.42%

All states: -2.14%

In other words, the decline in economic growth in forced unionism states (-2.42%) was 0.76% worse in 2009 than the decline in right-to-work states (-1.66%). Further, of the ten states that experienced positive growth in 2009, only two were forced unionism states (Alaska and W. Virginia) and eight were right-to-work states (Nebraska, N. Dakota, S. Dakota, Arkansas, Louisiana, Virginia, Oklahoma and Wyoming). The three top states with the highest growth in 2009 were all right-to-work states: Oklahoma (6.6%), Wyoming (5.4%) and North Dakota (3.9%).

Friday, November 19, 2010

Quote of the Day

China's Single-Child Adults Too Selfish for Marriage?

From economic theory we know that monopolists, when insulated from market competition, can get away with charging high prices and offering poor service. A single child has a form of "monopoly power" on his or her parents' time, affection, attention and financial resources, and without competition from rival siblings, can often exercise that monopoly power by behaving selfishly and narcissistically. Of course the parents can play a role by pampering their only child, but the stereotypical outcome is that only children (monopolists) become "spoiled."

There are now reports that China's divorce rate is soaring (Beijing's divorce rate is almost 40%), possibly because China's spoiled "single-child monopolists" may be "too selfish for marriage" as adults.

According to a recently-divorced 24-year old Chinese woman:

"Marriage requires forgiveness, understanding, tolerance and compromise. Yet we post-1980s generation neglect this entirely. No one will compromise. We just argue. Of all my friends who are married, 100 percent are unhappy."

And looking to the future she has this telling comment: "Next time I'll look for a husband with siblings."

Thursday, November 18, 2010

How Did We Get in This Mess? "Reckless Departure"

"In 1995, HUD announced a National Homeownership Strategy built upon the liberalization of underwriting standards nationally. It entered into a partnership with most of the private mortgage industry, announcing that "Lending institutions, secondary market investors, mortgage insurers, and other members of the partnership [including Countrywide] should work collaboratively to reduce homebuyer downpayment requirements."

The upshot? In 1990, one in 200 home purchase loans (all government insured) had a down payment of less than or equal to 3%. By 2006 an estimated 30% of all home buyers put no money down.

"The financial crisis was triggered by a reckless departure from tried and true, common-sense loan underwriting practices," Sheila Bair, chair of the Federal Deposit Insurance Corporation, noted this June. One needs to look no further than HUD's affordable housing policies for the source of this "reckless departure." If the mortgage finance industry hadn't been forced to abandon traditional underwriting standards on behalf of an affordable housing policy, the mortgage meltdown and taxpayer bailouts would not have occurred."

MP: A good summary of how the political obsession with affordable housing caused a lot of the problems in the real estate and mortgage industries, and led to the financial meltdown.

Weekly Rail Traffic Continues Steady Gains vs. 2009

The volume of weekly rail traffic continues to register improvements over last year, and the gains in Week 45 (November 8- 13) announced today by the American Association of Railroads were 5.8% for carloads (297,269), and 11.9% for trailers and containers (232,888 intermodal units) compared to the same week of 2009.

Steady weekly improvements in Warren Buffet's single-most favorite indicator ("rail traffic") indicate that there are ongoing increases in the demand for raw materials, commodities, parts, grains, lumber and other inputs, which will translate into future increases in final output. In other words, the increases in raw materials moving around the country by rail can only mean one thing: overall economic activity is picking up.

Leading Index, NY Fed Predict Continued Growth

The Conference Board's Index of Leading Indicators increased again in October, marking the fourth straight monthly gain in the gauge of future economic activity, and the 17th increase out of the last 19 months going back to April 2009 when the recession was winding down. Back-to-back monthly gains of 0.5% in the Leading Index in September and October suggest that the economic recovery will stay on track through the end of this year and continue to improve through next spring. According to the Conference Board, "the indicators are suggesting a mild pickup this spring."

In the last week, the Conference Board has also reported improvements in the leading indicators for China (+0.6%), U.K. (+0.3%) and Korea (0.8%), and declines for Spain (-0.1%) and Japan (+0.3%).

In another recent forecasting release for the U.S. from the NY Fed, its updated Treasury model through October continues to predict almost no chance of a recession through October of 2011.

Weekly Jobless Claims Fall to 26-Month Low

The Department of Labor reported today that the four-week average of initial unemployment claims fell to 443,000 for the week ending November 13, which is the lowest level since the first week of September 2008, more than two years ago (see chart above). The number of workers continuing to receive jobless benefits fell to 4,353,250 last week on a four-week average basis, the lowest level in almost two years since early December 2008.

Although it could be a lot better, the trends in jobless benefits are certainly moving in the right direction, and point to a labor market that is gradually recovering.

U.S. Consumers Move Towards Online Shopping

1. As a share of total retail sales in the third quarter ($978.7 billion), E-commerce sales ($41.5 billion) reached a new record high of 4.2% (see chart). That compares to about a 2% share in 2004 and 1% in 2000.

2. E-commerce sales of $41.5 billion in the third quarter of 2010 was the first time U.S. consumers spent more than $40 billion shopping online in a three-month period, and was also a new record for quarterly E-commerce sales.

3. Compared to the third quarter last year, E-commerce sales this year were up by 13.6% vs. an increase of 6% for total retail sales over the same period.

4. Online shopping increased by 4% in the third quarter compared to the second quarter, vs. a 0.8% increase for all retail sales.

Wednesday, November 17, 2010

Cleveland Fed Median CPI: No Inflationary Pressure

According to the Cleveland Fed's report today, its median CPI measure of prices increased by only 0.50% in October over the same month last year, the same as the year-over-year rate for each of the last three months (August - October). October marked the 26th consecutive month that the median CPI annual inflation rate dropped or stayed the same, and the 0.50% inflation rate in six out of the last seven months is the lowest year-to-year inflation rate in the history of the Cleveland Fed's series back to 1984 (see chart above). In contrast, the regular CPI from the BLS increased by 1.2% over the last year (October 2009 to October 2010), and has held steady at between 1.1 and 1.2% for the last five months.

Historically, the median CPI has been 50% more accurate at gauging future inflation than the traditional CPI (based on the Cleveland Fed's research), and neither the median CPI from the Cleveland Fed nor the CPI from the BLS is showing any signs of inflationary pressures.

1.The death toll from Mexico's drug war passed the 10,000 mark in early November, reaching 10,035 killed since the start of the year. At that pace (1,000 per month), there will be around 12,000 deaths in 2010 from the War on Drugs (including so far this year 52 soldiers, 637 police officers, 276 minors, 326 decapitated victims, almost 800 victims who were tortured before being executed, etc.), which could more accurately be called "The War on Innocent Mexican People Because of Insane Drug Laws." One thousand drug-related murders per month would be more than 33 killings every day, and more than one murder every hour of each day.

The 12,000 drug-related murders in Mexico this year will bring the drug death toll in the last five years to about 30,000 (see chart above) as a result of drug laws in Mexico and the U.S. In contrast, there have been "only" 4,561 combat-related American deaths in Afghanistan and Iraq combined since 2001.

2. As a Result of the War on Drugs, Mexico Has Its First Displaced-Persons Camp (source)

"When Hurricane Karl struck south-eastern Mexico in September, around 3,500 people left their homes to escape flooding. Last week, it was the north-east of the country that saw a displaced-persons camp sprout up. But the 400 people who are currently holed up in the event hall of the Lions Club, a charity group in the border city of Ciudad Miguel Alemán, were not relocated by act of God. Instead, they have fled from a man-made disaster: the fierce battle between the area’s two warring drug gangs, the Zetas and the Gulf “cartel,” for control of trafficking and dealing in the nearby town of Mier.

The drug gangs have plundered the well; burned the city’s police station, several businesses and dozens of vehicles; hung a dismembered corpse in a public park; and engaged in regular firefights. Schools have closed, and even the local government has abandoned its offices in favour of safer quarters in Ciudad Miguel Alemán, 15km away.

Many smaller municipalities along the border have also become virtual ghost towns this year. But the recent flare-up in Mier happened so quickly that some residents did not have time to arrange for a place to stay. In response, the town’s government-in-exile established a shelter at the Lions Club, and offered the room to those with nowhere to go."

MP: Can there be any rational, logical solution to stop this insanity other than the obvious one - legalization?

4. Women may value non-wage benefits more than men do, and as a result prefer to take a greater portion of their compensation in the form of health insurance and other fringe benefits.

The study concludes that “the differences in the compensation of men and women are the result of a multitude of factors and that the raw wage gap should not be used as the basis to justify corrective action. Indeed, there may be nothing to correct. The differences in raw wages may be almost entirely the result of the individual choices being made by both male and female workers.”

And yet the Senate will vote this week on “The Paycheck Fairness Act,” which according to the American Association of University Women is a critical piece of legislation that “can help create a climate where pay discrimination is not tolerated, and give the new administration the enforcement tools it needs to make real progress on pay equity.”

Read more here at The Enterprise Blog about how The Paycheck Fairness Act Will Fatten Paychecks for Trial Lawyers, Not Women.

Update: The Paycheck Fairness Act failed in the Senate today - 60 votes were needed to move the bill forward and the supporters had only 58 votes.

Billion Prices Project @ MIT

"The Billion Prices Project @ MIT is an academic initiative that collects prices from hundreds of online retailers around the world on a daily basis to conduct economic research. We currently monitor daily price fluctuations of ~5 million items sold by ~300 online retailers in more than 70 countries.

BPP Database Key Facts

Statistics updated every day

5 million individual items

70 countries

Started in October of 2007

Supermarkets, electronics, apparel, furniture, real estate, etc.

Data collection: Our data is collected every day from online retailers using a software that scans the underlying code in public webpages and stores the relevant price information in a database. The resulting dataset contains daily prices on the full population of products sold by individual retailers, allowing us to observe every single price change that takes place. Our data includes information on product descriptions, package sizes, brands, special characteristics (e.g. “organic”), and whether the item is on sale or price control.

Example: The chart above shows daily price indexes for the U.S. from July 2008 through November 15, 2010, comparing the BPP Index to the Consumer Price Index.

Used Car Prices Reach Record High in October

Used car prices reached a record high in October according to Manheim Consulting's Used Vehicle Index (see chart above) and also Edmunds.com, which reported the average used car price reached a record high of $18,570 last month. From a CNN article:

"According to Karl Brauer, an analyst for automotive website Edmunds.com, those preferring used cars over new fall into two categories: buyers who are forced to economize and others who can afford new but decide to hold off because "there's a bit of a stigma to spending." Or, as Tom Webb, chief economist for Manheim Auto Auctions, put it: "It's cool to be frugal."

Here are some of the factors reported by CNN that have pushed used car prices to record levels:

1.Improvements in design, materials and manufacturing mean that today's vehicles can be operated safely longer than ever, which helps used vehicles retain their value longer.

In its monthly release on vehicle sales, Manheim Consulting reports that in addition to a healthy used car market, "new vehicle sales suggest a solidifying recovery."

It's also important to recognize that U.S. automakers like Ford have been significantly more profitable in 2009 ($2.7 billion profit) and 2010 ($6.4 billion profit in the first three quarters of 2010), even with significantly fewer units sales than in 2008 when it lost almost $15 billion and 2007 when it lost $2.7 billion. The focus on cost reductions over the last several years (e.g. getting hourly labor costs down from $78 to about $52) are now translating into strong profits for Ford and GM and have helped the U.S. automakers experience a strong, and ongoing rebound.

Update: According to CNBC, GM made a profit of $3,000 per vehicle in the third quarter of 2010.

Tuesday, November 16, 2010

Human Development: Mississippi Ranks Above Italy

The chart above is from The Economist, and shows that in terms of "human development" (heath, education and wealth), many U.S. states (Connecticut, NY, Wyoming, California, Illinois and Florida) rank ahead of Australia, Switzerland, Canada and Japan, and even more amazing is that Kentucky ranks ahead of France, Arkansas ranks ahead of the U.K., and Mississippi ranks ahead of Italy.

Perks and Company Parties Stage a Comeback

"With growing signs of an economic recovery, Chicago employers are again warming up to holiday parties. After two years of cutbacks, layoffs, bailouts and outright bankruptcies, the return of this annual ritual signals that corporate managers are more confident about business prospects and feel a need to invest again in morale, reward and recognition."

"Miss the free office soft drinks, commuter subsidies — and yes, even those year-end holiday parties? Don't despair. The workplace perk is beginning to make a comeback. During the recession, many cost-conscious companies furloughed fringe benefits such as holiday fetes, bonuses and free snacks. But now that the economy is improving, some perks are slowly being reinstated."

Quote of the Day

Freight News: Lots of Positive Signs

1. Passenger traffic at Los Angeles International Airport (LAX) increased by 4.1% in September above last year, and 5.2% above September 2008. The 4.7 million passenger count in September was the highest for that month since the 4.8 million passengers in September 2007.

Freight traffic at LAX in September was 8.1% higher than last year, and 10.3% above the same month in 2008. The 157,466 tons of air freight this year was 8.6% below the 172,238 tons in the pre-recession month of September 2007.

2. "The volume of containers handled by the Port of Savannah in October increased 16.7 percent to 273,296 20-foot equivalent units compared to the same month last year.The overall total of freight handled by all Georgia ports reached a new monthly record of 2,347,260 tons, which represented an increase of 9.8 percent compared with last October."

3. The ports of Los Angeles and Long Beach recorded strong growth again in October, indicating that the peak-shipping season in the trans-Pacific this year had some staying power. Containerized imports in Long Beach were up 33.5 percent compared to October 2009. Imports were up 5 percent over September 2010. Imports in Los Angeles increased 3.19 percent compared to October 2009, which was the strongest month for imports last year. Imports in Los Angeles were down 7 percent from September 2010.

October was the busiest month of the year so far for exports from Long Beach. Exports increased 26.3 percent compared to October 2009, and they were up 9 percent over May, which was the previous high point in 2010. Exports in Los Angeles were flat compared to October 2009, but exports were up 8 percent from September 2010. See related post here by Scott Grannis.

4. Shipping volume at the Port of Seattle was up by 18.5% in October compared to the same month last year, following double-digit percentage gains in every month this year. The number of fully loaded outbound containers in October of 55,552 was the highest for the year, and the highest in a single month going back to at least 2008.

5. Total tonnage at the Port of Portland increased in September by 14% above last year, and year-to-date total tonnage at Portland is 36% above last year.

Monday, November 15, 2010

Oct. Retail Sales Back Close to Pre-Recession Levels

Given the strong increases in year-over-year sales tax collections in October for many states like Virginia (6.5%), Georgia (7.4%) and Texas (6.6%), it shouldn't be surprising that retail and food sales increased by 7.3% in October above last year (see bottom chart above). The October increase in retail sales follows a similar 7.4% increase in September, suggesting that consumers are gradually gaining confidence and starting to spend again.

Compared to a year ago, spending in all major categories have improved, with especially large gains in motor vehicles (14%), building materials (12.2%) and sporting goods (6.7%). The $373 billion in consumer spending in October was the highest monthly total since August of 2008, more than two years ago (non adjusted for inflation). October retail sales were only 2% below the $380 billion peak in November 2007 before the recession, and at this pace, retail sales will be above pre-recession levels within the next few months.

Markets in Everything: Handwritten Notes for $3

You knew this was inevitable....

Handwritten thank you notes are truly remarkable in this age of IMs and emails. But who has time to sit down and write them? The ThankThank company helps busy professionals send handwritten notes to customers efficiently for $3 per note (see sample above).

The Pending 26% Tax Hike on the Middle Class

In today's "The Gartman Letter" Dennis points out what will happen if the "Bush Tax Cuts" expire:

1. All income tax rates will go higher with the bottom rate moving up from 10% to 15% while the top rate shall go up from 35% to 39.6% (see chart above comparing 1999 and 2008 tax rates).

2. The tax credit for children will drop from $1000/child to $500.

3. The standard deduction for married couples will be cut.

4. Capital gains taxes will go up from 15% to 20%.

5. Dividends, which now are taxed at a lower rate than earned income will rise to that same level.

6. The one year “exemption” in estate taxes ends but with a $1 million exemption, and the tax rate goes to 55%.

The chart below is from The Tax Foundation and compares annual individual income taxes paid before and after the "Bush tax cuts" by various income groups:

Despite all of the political rhetoric about "tax cuts for the rich," this analysis shows that federal income taxes have fallen for groups at all income levels as a result of the Bush tax cuts, compared to the 1999 tax rates under Clinton. And therefore, taxes for all groups would go up if the current tax rates expire at the end of the year (see percentage increases in taxes for each group above).

And in fact, the group in the chart above that would experience the largest percentage increase in taxes would be the married taxpayers with $50,000 of household income (clearly middle class by most definitions) - they would pay 26.7% more in taxes if the Bush tax rates expire. By contrast, "rich" single taxpayers with income of $125,000 would pay only 10% more in taxes. In other words, some middle-class taxpayers received twice the tax cut on a percentage basis as some of "the rich" under the Bush tax rates, and that group would suffer the most with higher taxes if the current federal income tax rates expire.

Sunday, November 14, 2010

Consumer Greed Causes Trade Deficit With China

"What about the argument that American producers are undercut by cheap goods imported from low-wage countries like China? Whose fault is this? The answer is easy. If American consumers refused to buy goods produced in China, there would be no Chinese-made goods on store shelves.

American consumers who prefer lower prices to higher prices are the true enemy of American companies and their unions whining about "free but fair trade." They should show up in front of Walmart and other sellers of foreign products and denounce American consumers who buy foreign-made products. That would be honest. The "free trade but fair trade" lobby finds it more effective to pursue their agenda by stealth — namely intimidate and bribe congressmen into enacting tariffs and quotas."

Quantitative Easing Explained

Saturday, November 13, 2010

I reported earlier today on the ongoing oil boom in North Dakota's Bakken region, which has set fresh oil production records in six out of the last seven months and now produces 6% of America's crude oil. And all of this is taking place in an area that was never expected to produce so much oil, despite the 4.3 billion barrel estimate of reserves there, because the dense, nonporous rock in the Bakken region makes extraction extremely difficult and costly.

That all changed when advanced horizontal drilling and hydraulic fracturing techniques started successfully tapping Bakken oil two miles below the surface in 2006. After some initial success with the new technology, the original estimates were for peak Bakken production of only 220,000 to 280,000 barrels per day, but daily production went above 280,000 in April this year by September had reached 341,384 barrels. Oil production is expected to hit 400,000 barrels per day by next year, and remain at that level or higher for the next 10-15 years.

"Know-how gained from North Dakota's once-perplexing Bakken shale formation is being used to exploit other onerous oil plays across the globe. Oil companies and countries a world away have taken notice of North Dakota's success, said Lynn Helms, director of the state Department of Mineral Resources.

Companies say they are aiming to apply technology learned from the Bakken to geologically similar shales in China, France, Poland, Canada and in some U.S. states, including Wyoming, Utah and Colorado. Companies already have used Bakken technology to successfully tap the rich Three Forks-Sanish formation, directly below the Bakken."

MP: New, advanced techniques for drilling oil have revolutionized the domestic oil industry in North Dakota in ways that couldn't have even been predicted just a few years ago, and will likely also open up new oil production in other parts of the world in the near future (like the Alberta Bakken in Canada) that also would have been unimaginable before this year. That's one reason that "peak oil" is peak idiocy: it always underestimates the ultimate resource - human capital (i.e. human ingenuity and the resulting innovation, advances, new technology) - which is endless and boundless, and will never peak.

World Stock Markets Set Record Three-Month Gain

For the third month in a row, the World Federation of Exchanges reported a significant gain in world stock market capitalization for the month of October, with a $1.6 trillion increase that pushed the total value of world stocks to $51.8 trillion (see chart). The October increase follows gains of $2.8 trillion in August and $3.8 trillion in September, for a cumulative three-month gain of $8.2 trillion from August-October, one of the largest three-month gains ever. From the cyclical low of $26.6 trillion in February 2009, the world stock valued has almost doubled to just under $52 trillion last month, and provides further evidence of a worldwide economic recovery and global bull market rally.

Sept. Bakken Boom: ND Sets Another Oil Record

North Dakota pumped another record amount of oil in the month of September, producing more than 10 million barrels in a single month for the second month in a row and beating the previous record set in August by almost 50,000 barrels (see chart above, data here). Compared to September of last year, oil production has increased by 43.4%, and oil production in North Dakota has doubled in a little more than two years - from slightly fewer than 5 million barrels in June of 2008 to more than 10 million barrels in both August and September this year. North Dakota's rich oil fields now produce 6% of America's domestic crude oil production, up from less than 2% in 2006 (data here).

Partly because of its ongoing oil boom in the Bakken area, North Dakota continues to lead the nation with the lowest unemployment rate at 3.7% in September, almost 6 full percentage points below the nation's average 9.6% rate. The oil boom has fueled an employment boom for oil workers in North Dakota (data here) - the number of oil-related jobs has grown from fewer than 4,000 at the beginning of 2005 to almost 9,000 in September of this year.

Through September of this year, North Dakota has already produced more oil (81 million barrels) than all of last year (79.7 million barrels), and is on a pace to produce about 112 million barrels in 2010, which would be almost twice as much as 2008 (62.8 million barrels) and almost three times as much as 2007 (45.1 million barrels). In recent years, North Dakota has surpassed oil production in Oklahoma, Louisiana, New Mexico and Wyoming, and North Dakota, and has gone from the 9th highest producing oil state to the #4 rank now, behind only Texas, California and Alaska.

Virginia's Tax Collections Improve 3.7% in October

"Virginia Gov. Bob McDonnell announced Friday that October revenue collections increased by 3.7 percent over the prior year. This is the seventh month out of the last eight in which state revenue collections exceeded the previous year’s amount. The revenue increase was primarily driven by individual withholding (+4 percent) and sales tax (+6.5 percent) collections."

McDonnell notes, “We have now seen seven of the last eight months feature increases in revenue collections, and this has occurred in tandem with a slight decrease in our unemployment rate. Clearly, these are signs of a modest turnaround in Virginia’s economy."

Other highlights: It was the first time in three years that Virginia's tax revenues have grown three months in a row, and the first time since April 2008 that income tax withholding taxes have increased for six consecutive months (source).

Friday, November 12, 2010

Chinese Workers Build 15-story Hotel in Just 6 Days

Yahoo! News -- "A construction crew in the south-central Chinese city of Changsha has completed a 15-story hotel in just 6 days. The work crew erected the hotel -- a soundproofed, thermal-insulated structure reportedly built to withstand a magnitude 9 earthquake -- with all prefabricated materials. In other words, a crew of off-site factory workers built the sections, and their on-site counterparts arranged them on the foundation for the Ark Hotel project.

Despite the frenetic pace of construction, no workers were injured -- and thanks to the prefab nature of the process, the builders wasted very few construction materials. Above is a time-lapse video that shows the hotel being built from the ground up in less than a week."

HT: My co-author Seyed Mehdian, who asks "Would this have been possible under central planning and communism?"

From Darren in the comments: "I see this as a testament to how well capitalism has worked. Does anyone doubt that the technology to enable such a thing was created through a free market system that rewards innovation? The fact that a totalitarian regime has embraced capitalism at a pace and degree to which no one 10 years ago would have predicted just reinforces the power of free markets."

Making the Case for More Nuclear Power

To be sure, we also need to consider all forms of renewable energy as they become cost-effective, but the unavoidable truth is that nuclear plants occupy a small fraction of the land required for solar and wind power. And while nuclear plants produce electricity about 90 percent of the time, wind turbines generate power, on average, only 30 percent of the time and require back-up electricity from fossil fuel turbines on days when the weather isn't cooperating. Solar energy is less efficient, providing electricity only 20 percent of the time.

Nuclear power, therefore, must play a larger role in maintaining our nation's energy security and reducing atmospheric pollution and acid rain. Nuclear power also has economic benefits, as it provides a stimulus for new jobs and revenue.

The Saudis can build nuclear plants. The Turks can build nuclear plants. We can, too. The enormous power at the heart of the atom promises to benefit economies worldwide.

Thursday, November 11, 2010

Five More States Report Improvements in October

1.Georgia's economy continued to show signs of improvement as state tax collections rose in October, the fifth straight month they have climbed. Tax collections for the month are up 8.2 percent from the same month a year before, an increase of almost $93 million. Individual income tax collections -- considered an important economic indicator -- rose 4.1 percent. Sales tax collections jumped 7.4 percent. Corporate income taxes dipped 10.5 percent. Motor fuel taxes increased 14.1 percent.

2. Kentucky's general fund tax collections rose 8.1 percent in October from the same month a year ago, the best monthly improvement in two years but one that the state's budget director says isn't sustainable. Thanks in part to last month's strong performance, revenue collections have risen 5.3 percent for the first four months of the fiscal year. The 8.1 percent revenue upswing was the state's best monthly improvement since April 2008.

3. Texas sales tax receipts grew 6.6 percent in October compared to the same month a year ago. The $1.6 billion jump marks the seventh consecutive month of growth following a 14-month slump.

4. Tennessee's tax revenue grew 6.4 percent in October compared to the year before, a sign that the state may be starting to feel an economic recovery. It was the third straight month of year-over-year gains.

Wednesday, November 10, 2010

Is The U.S. A Currency Manipulator?

The U.S. dollar has depreciated by about 30% over the last 8 years, and during that time period U.S. exports as a share of GDP increased from about 9% in 2002 to 13.2% in mid-2008, and then fell through early 2009 as a result of the recession and a stronger dollar (see chart). Since early 2009, the dollar's decline has continued, and exports as a share of GDP have been increasing. Is the U.S. guilty of manipulating its currency to increase exports?

Note: The chart has been updated to reflect U.S. exports as share of GDP on a quarterly basis. I previously divided quarterly exports by annual GDP, and have corrected the data and chart above. Thanks to Scott Grannis.